Cudo for sale with $60m price tag

Twelve months after it was launched by Nine Entertainment Co and Microsoft with an initial investment of $800,000, the group buying web- site Cudo is on the market with a price tag of more than $60 million.

Macquarie Group has set up a data room and distributed an information memorandum to several potential buyers of Cudo, including the United States-based group buying site companies Groupon and Living Social, and the Seven West Media-Yahoo! joint venture Yahoo!7.

Nine and Microsoft, which are partners in the internet company ninemsn, were also understood to be planning to reduce their 35 per cent stake in the online comparison ­website iSelect via an initial public offering.

An information memorandum on the iSelect float was expected to be distributed as early as this week. Nine, which is owned by private equity firm CVC Asia Pacific, and Microsoft were believed to have valued iSelect at more than $500 million.

In March American private equity firm Spectrum Equity Investors paid $30.2 million for 10.2 per cent of iSelect, valuing the company at $296 million. Nine and Microsoft bought their stake, through ninemsn, in 2006 for about $20 million.

Nine executives declined to comment on the iSelect float or the potential sale of Cudo which, according to research company Telsyte, was the second-largest company in the booming online group buying category during the June quarter, with a 16.7 per cent share of revenue.

Scoopon ranked No. 1 with a 20.5 per cent share, followed by Living Social’s two local sites – Living Social and Jump On It – with a combined share of 16.4 per cent, and Spreets with 15.5 per cent.

Scoopon is owned by CatchOfTheDay, which sold a 40 per cent stake to a group of investors including James Packer’s private company, Consolidated Press Holdings, in May for $80 million.

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Spreets was acquired by Yahoo!7 in January for $35 million, including an unspecified deferred payment tied to the site’s future earnings.

Nine and Microsoft were understood to have valued Cudo at between $60 million and $80 million. “If they get the right price, they will sell it," one source said. “If they don’t get it, they will keep the business."

Cudo’s rivals claimed its revenue had slipped in recent months, as Groupon and Living Social gained share.

But sources close to Nine maintained that Cudo’s revenue was still growing and it was the most profit­able group buying site in Australia, generating a profit of more than $500,000 a month.

The online group buying market has exploded since the first local sites, Spreets and Ouffer, appeared in February last year.

Telsyte estimated the market jumped from $71.8 million in the March quarter to $123.9 million in the June quarter and would turn over $400 million across 2010-11.

“This is a once in a decade market," Cudo chief executive Billy Tucker told The Australian Financial Review last month. “It will turn over $400 million this year [2010-11] and it feels like a $1 billion market.

“About 2.5 million Australians are using group buying sites. The natural audience is about 6 million – which is the number of people who use the eBay Australia site each month – so there is a lot of growth to come."

The proceeds for a sale of Cudo and a float of iSelect would not be used to reduce Nine’s $3.4 billion debt, as neither business is taken into account when the media group’s bank covenants are assessed. “The money would give Nine some flexibility in terms of investing in its other businesses or making acquisitions," a source said. “It doesn’t have much flexibility now, given its debt."

The launch of Cudo was part of Nine’s strategy to use its television and magazine businesses to help build new or fledgling companies.

That strategy has seen Nine buy 19.9 per cent of Mark Bouris’s wealth management company
Yellow Brick Road
, acquire 20 per cent of online shoe retailer StyleTread, and set up an online travel retailing business called Getaway Lounge.

“There are lots of opportunities to invest in new companies, use Nine and ACP to help build them up, and then trade them," Nine chief executive
David Gyngell
told TheFinancial Review earlier this year. “We’re not looking to be long-term holders of most of these companies."